Delivering IT Value During Challenging Times:A Financial Services Perspective

Shelley Leibowitz, Morgan Stanley

Managing Director and Company CIO

October 30, 2002

Agenda

The Landscape

Today’s IT Value Proposition

The Strategic Response

Final Thoughts

The Landscape

Morgan Stanley as an Enterprise

* Revenue FY2001

Institutional Investment Management Individual Investment Management Trust Services

$2.4 BN in Revenue * 100 K Accounts 400 BN Assets Under Management

Investment Management

Seoul

Toronto

SanFrancisco

Los Angeles

LondonParis

Hong Kong

Tokyo

Taipei

Singapore

Melbourne

Mumbai

Sydney

Mexico City

Johannesburg

Menlo Park

Dallas

Luxembourg

WashingtonNew York

Boston

Austin

São Paulo

Bangkok

BuenosAires

Atlanta

Denver

Chicago

Montreal

Madrid

GenevaMilan

Zurich MoscowFrankfurt

AmsterdamStockholm

Beijing

ShanghaiTel Aviv

Investment Banking Sales and Trading (Institutional and Individual)

$15.9 BN in Revenue * 5.5 MM Accounts 600+ Branch Offices

Discover Financial ServicesDiscover Card

$3.6 BN in Revenue * 50 MM Accounts 4 MM Merchants

Credit Services

Securities

Company Structure

Administration & Planning Finance

THE COMPANY

Securities Investment Management Credit Services

Institutional Securities Individual Investor Group Discover Financial Services

Traditional Investments

Alternative Investments

Retirement Services

Advice

Other

Investment Banking

Institutional Sales & Trading

Research

MSCI

Investor Advisory Services

Private Wealth Management

Independent Investor Services

Law

The Morgan Stanley Story

Great positioning for long-term secular growth trends

Global presence

Innovation

Great franchise

Vision

Sophisticated technology

Leadership position in all business segments

Outstanding people

Business Climate

Retrenchment

20012000

Hyper Growth

2003

Cautious Optimism

Themes:Time to market

E-commerce

Changing business models

Themes:Efficiency

Cost management

Themes:Rethinking

Doing more with less

Productivity

Governance

2002

?

Themes:Risk management

New opportunities

Regulation

Oversight

Financial Services Marketplace

Margins

Market Conditions

Transactional Volumes

Product Complexity

Industry Consolidation

Competition for Client Relationships

New Entrants Into the Broker/ Dealer Space

Today’s IT Value Proposition

Living in a Post-9/11 World

Business Continuity Planning Redefined to Business

Resumption Separate people centers from

technology centers Maintain geographic diversity Broad business diversification

Security Increased threats Information security critical Threats internal and at the

perimeter Partner security

Human Capital Supplier Risk

Living in a Post-9/11 World

USA Patriot Act Signed October 26, 2001 - passed in the

wake of Sept. 11

Grants additional powers to law enforcement and intelligence agencies

Significant new requirements on US Financial Services firms to detect money laundering, fraud, and other suspicious activities

Main program components for Financial Services

Anti-money Laundering Program Customer Verification and Identification Suspicious Activity Surveillance and Reporting

Enron and Beyond

Accounting's role in Enron crash erases years of trust

Is Arthur Andersen's Number Up?

Tyco shares plunge as CEO resigns under a cloud

WorldCom Woes Put Spotlight on Qwest, Sprint

Adelphia joins list of corporate crashes

Memo Indicates Global Crossing Chief Knew of Troubles

Xerox forced to restate revenues

More cheats are hiding in America, says Bush

More Firms on Brink?

One more big scandal comes as no shock

America's Corporate meltdown

Trust and ConfidenceAccounting and Disclosure Scrutiny

Conflicts of InterestGuardianshipGovernance

Risk Exposures

• Business Practices & Controls

• Documentation

• Legal & Compliance

• Regulatory

• Disclosure

• Audit

Legal &Regulatory

Risk

RiskManagement

CounterpartyRisk

Market Risk

OperationalRisk

• Operations Processing

• Financial & Tax

• Technology

• Supplier Risk

• Business Interruption

• Manpower & Intellectual Capital

1999 2000 2001

25%Growth

6%Growth

~20%Growth

2002 (est)

0 - (10)%Growth

Leveraging the IT Investment

Spending Trends

20% average growth of IT spend (1995 through 2000)

Estimates forecast IT spend for 2002 down 5-10% YOY

Multi-Year hangover of capital outlays

Source: Morgan Stanley, Office of the CTO

Morgan Stanley Firmwide IT Spending

The Strategic Response

The Strategic Response

Culture and Human Capital

Partner Leverage and Creative Sourcing

Structural Integrity

Managing the Project Portfolio

Guardianship Initiatives

Culture and Human Capital

Focus on the Client

Ethicsand

Integrity

Firm Vision

Communication

Teamwork

RiskManagement

Excellence

Culture and Human Capital

Talent Management

Mentoring

Career Development

Skills Assessment

Professional Development Plans

Peer Reviews

Flexible Work Arrangements

Partner Leverage and Creative Sourcing

The Leverage

Strategic Partnerships

Service Providers

Domain Experts

The Risks

Service Levels

Viability

Geo-Political

Partner Leverage and Creative Sourcing

Co-sourcing and Outsourcing

Cost Leverage Core Competencies Diversification Smoothing Demand

Goals

Business Process Technology

Options

Development Maintenance Testing

System Monitoring

ASP

Financial Connectivity Tools Security

Responsibilities Audit Drug Testing

& Employment

Company ITCompany IT

InstitutionalInstitutionalSecurities ITSecurities IT

Discover ITDiscover ITInvestmentInvestmentManagement ITManagement IT

InstitutionalInstitutionalInvestor Group ITInvestor Group IT

Company Structure

Agility

Alignment

Empowerment

AccountabilityTHE COMPANY

Securities Investment Management Credit Services

Institutional Securities Individual Investor Group Discover Financial Services

Traditional Investments

Alternative Investments

Retirement Services

Advice

Other

Investment Banking

Institutional Sales & Trading

Research

MSCI

Investor Advisory Services

Private Wealth Management

Independent Investor Services

LawAdministration & Planning Finance

* Office of the CTO

Structural Integrity

Transparency

Cost Allocation

PMO

Governance

Managing the Project Portfolio

• Planning

• Reporting

• Governance

• Financial Management

• Metrics

PMO

A Holistic Approach to Rationalizing and Optimizing

Standards Based Approach

ApplicationsData • System Integration

• Product Platforms• Application Suites• Middleware & Interoperability

• Accuracy• Consistency• Timeliness• Integration

• Controls• Workflow/Reengineering• STP• Self-service• Shared Service

• Reliability• Stability• Capacity• Connectivity• Collaboration

Business Process

BusinessImperatives

Infrastructure

Guardianship Initiatives

Importance of the Infrastructure

Patriot Act

Compliance and Controls

Transparent and Meaningful Disclosure

Risk Management

Business Continuity Planning

Audit

Final Thoughts

Keys to Success

There is notechnological

silver bullet

It’s all about the people

The real keys to success lie in leadership and

culture

Align with yourbusiness partners

Protectthefranchise

Q&A